Legislation & Policy

Trends in Criminal Sanctions for IP Crimes in China

SIPSKnowledge, Legislation and Policy

Beginning in 2016, China introduced pilot programs on plea bargaining with the aim of creating greater efficiency in its criminal enforcement system. Soon after, legislation and judicial guidelines were introduced to further encourage voluntary admissions of guilt by both relaxing and clarifying the conditions under which courts may grant leniency in criminal sentencing.   The policy is now referred to as “leniency for those who admit guilt and accept punishment” (the “Plea Leniency System”).

The first step in codifying new norms was effected through the amendment of the Criminal Procedure Law in 2018 which imported aspects of the Plea Leniency System. In 2020, further rules were issued by national authorities focusing exclusively on intellectual property (IP) crimes. Local courts, including those in Shanghai, also began issuing their own guidelines, largely mirroring national rules.

Despite the lack of comprehensive supporting data, there is anecdotal evidence suggesting that these new guidelines have resulted in a substantial increase in the number of suspended prison terms in counterfeiting cases.

One catalyst behind this trend is the recent policy of Chinese courts to award higher damages in civil cases against IP infringers. This policy was mainly intended to help victim IP owners cover their losses but may in fact be encouraging prosecutors and courts to grant suspended sentences in cases that would traditionally justify a custodial sentence.

Regardless, the increasing predictability of suspended sentences may actually be encouraging counterfeiting in China.

How to Respond?

Victim brand owners are typically advised to accept offers of compensation from counterfeiters before prosecutions begin, provided the amount is roughly consistent with the amount a local civil court would award. But victims should first confirm with prosecutors that the defendants will likely be granted a suspended sentence regardless of whether a settlement with the victim is reached before the prosecution stage.

Brand owners concerned that suspended sentences are undermining their enforcement programs may want to consider documenting their experiences and reporting to judicial authorities at the national and local levels, ideally with the support of their industry associations, such as the Quality Brands Protection Committee (QBPC).

National Legislation and Guidelines

Under China’s Criminal Law and relevant judicial guidelines, counterfeiters that are found to have produced or sold infringing goods over a particular threshold are subject to jail terms of three years or below. When production or sales exceed a higher threshold, jail terms of minimum of three years and a maximum of ten years may be applied.

Suspended sentences have traditionally been allowed for any case where the court has ordered jail time of three years or below.  Article 67 of the 1979 PRC Criminal Law (now superseded by later versions and accessible here) provided as follows:

For criminals who have been sentenced to criminal detention or fixed-term imprisonment of less than three years, if based on the criminal’s criminal circumstances and repentance, it is believed that the application of suspended sentences will no longer harm society, a suspended sentence may be announced.

Article 3 of 2007 judicial interpretation on IP crimes (see here) and Article 8 of 2020 judicial interpretation on IP crimes (see here) jointly issued by the Supreme People’s Court (SPC) and the Supreme People’s Procuratorate (SPP) clarified the conditions for allowing suspended sentences by prohibiting them in the following situations:

  • where the criminal is a repeat offender, i.e., he has previously been the subject of criminal or administrative punishment;
  • he has a career that mainly operates around infringing intellectual property rights;
  • he does not demonstrate remorse;
  • he refuses to return illegal gains (profits); or
  • he counterfeits registered trademarks of goods such as emergency rescue and disaster relief and epidemic prevention during major natural disasters, accident disasters, and public health incidents.

Starting in 2016, judicial authorities commenced a regional pilot program introducing the Plea Leniency System covering all types of crimes – including IP violations. Thereafter, national authorities issued new legislation and judicial guidelines as follows.

  1. In 2018, the Criminal Procedure Law was amended (see here), that adopted key elements of the Plea Leniency System.
  2. In 2019, judicial guidelines governing all types of crimes were jointly issued by the SPC, the SPP, the Ministry of Public Security (MPS), the Ministry of National Security (MNS) and the Ministry of Justice (MOJ) that set out detailed factors for the granting of leniency in the sentencing process. Under these guidelines, leniency could be granted where criminals plead guilty and accept punishment, provided the court has considered the opinions of the victims. Courts can then determine the exact level of leniency by taking into consideration whether the criminal and the victim have reached an accord under which compensation has been paid to the victim and the victim has accepted the criminal’s expression of remorse, typically by issuing a “forgiveness letter”.

The 2019 guidelines make clear that courts may grant leniency even where the victim has explicitly objected to leniency and where the criminal has failed to compensate the victim. In such cases, courts are encouraged to limit the leniency granted, but not necessarily deny leniency altogether.

See the “Guidelines on the Implementation of the ‘Plea Leniency’” here.

  1. 2020 judicial interpretation on IP crimes specified that more lenient treatment can be accorded provided that:
  • the IP violator pleads guilty and accepts punishment;
  • the victim IP owner has signaled its forgiveness (no doubt in exchange for compensation); or
  • the violator has otherwise demonstrated repentance.

See here for the 2020 interpretation and here for the SIPS translation.

As the above factors are alternatives, “forgiveness” from the victim can be a factor contributing to leniency, but it is clearly not required.

More recently, in January 2023, the SPP and SPC issued a draft for public comment of a new interpretation that was intended to replace the above judicial interpretations on IP crimes. Articles 21 and 22 of this draft provide as follows:

Article 21 – Anyone who falls under any of the following circumstances may be given a heavier punishment as appropriate, and suspended sentence is generally not applicable:

  1. Has a career that mainly operates around infringing intellectual property rights;
  2. Counterfeiting registered trademarks of goods such as emergency rescue and disaster relief and epidemic prevention materials during major natural disasters, accident disasters, and public health incidents;
  3. Refusing to hand over illegal gains [revenues].

Article 22 – Anyone who falls under any of the following circumstances may be given a lighter punishment as appropriate:

  1. Obtaining the [victim’s] understanding [forgiveness];
  2. Demonstrating repentance; or
  3. Obtaining the [victim’s] trade secrets by improper means but not disclosing, using or allowing others to use them yet.

See here for the draft interpretation.

As with the 2020 interpretation, leniency would not require “forgiveness” from the victim IP owner. But it would seem to require payment of the illegal gains to the government.

Local Guidelines on Suspension of Sentences – Shanghai

The above national guidelines do not specifically clarify the conditions under which courts may grant suspended sentences to IP violators. If such guidelines have been issued, they remain unpublished.

However, judicial authorities in Shanghai issued local rules in 2019 that offer a clearer sense of how local courts approach leniency following the 2018 amendment to the Criminal Procedure Law.

The Shanghai rules – referred to as “Sentencing Guidelines for IP Crimes” – issued by the Shanghai Higher People’s Court (see here), set out the following conditions for the granting of suspended sentences as well as for prohibitions on the issuance of suspended sentences.  Consistent with the above national rules, “forgiveness” from the victim is not required, but payment to the government of the illegal gains is.

Conditions for granting suspended sentences:

  • Subject to exceptions (see below), if a suspended sentence is available under the Criminal Law, and if the criminal pleads guilty and accepts punishment and returns the illegal revenues, a suspended sentence shall be imposed.
  • Suspended sentences may otherwise be granted where:
    1. the criminal is subject to a prison term of less than three years (i.e., where the infringer does not plead guilty or return the illegal revenues); or
    2. where the prison term is three years or greater, subject to (a) mitigating circumstances; (b) the infringer pleading guilty and repenting; and (c) the infringer returning the illegal gains [revenues).

Conditions under which suspended sentences must be denied:

  • where the criminal is a repeat offender, i.e., he has previously been the subject of criminal or administrative punishment;
  • he refuses to return illegal gains [revenues);
  • he does not demonstrate remorse;
  • he is the principal involved in a joint crime and the crime is deemed serious;
  • the scale of the violation is huge or the social impact is particularly great;
  • the goods concerned involve food, medicine, special products for mothers, infants and young children, or other products that endanger personal safety, provided however that the counterfeits have the same quality as corresponding genuine products; and
  • the criminal is deemed to have violated multiple provisions of the Criminal Law.
Data

The Plea Leniency System is clearly being implemented in a concerted manner throughout China.

In 2020, the SPP issued a report specifically on implementation of the Plea Leniency’ System (see here), which noted that from 2019, the system had been applied in the following percentages of cases:

January 2019 – 20.9%
June 2019 – 39%
December 2019 – 83.1%
January to August 2020 – 83.5%

The SPP also reported that up to July 2023, 90% of criminal cases applied the Plea Leniency System, and the courts accepted the recommendations regarding criminal sentences of prosecutors in 99% of all cases (see here).

Available data is limited as to the percentage of cases where suspended sentences had been granted. But it was reported in 2019 that the level was 36.2% for all types of cases (see here).

For IP crimes, a judge from Shanghai Higher People’s Court revealed in a presentation at the 2019 “China IP Forum on Practical Issues” (see here) that the rate nationwide was ranged from 50% to 90%.

Only limited regional data is available regarding the number of cases where leniency and suspended sentences were granted. But in Shanghai, from 2020 to October 2022, 513 convictions were issued in Shanghai for sale of counterfeits, and in 83% of these convictions, a suspended sentence was granted (see here).

This contrasts with the period of 2015-2019, during which only 84 suspended sentences were given among 257 convictions in IP criminal cases handled by the Shanghai 3rd Middle Court,  (see here).